Grupo Clarín S.A. (GCLA) Earnings Call Transcript & Summary

Good morning. My name is Dave, and I'll be your conference operator today. [Operator Instructions] This is Grupo Clarín's conference call, where we will discuss results for the full year and last quarter 2023. This call is for investors and analysts only. Therefore, questions from the media will not be taken at this time. However, if you are a member of the media and have questions, please contact the Fig Corporate Communications following the call. I would now introduce our speakers, Ms. Samantha Olivieri, Head of Investor Relations. Additionally, Iván Acevedo, Controller; and Marcelo Boncagni, Audit Manager, will also be available today's for today's Q&A session. The team will be discussing the results as per the earnings release distributed last Friday, March 8. If you have not received the report or need assistance during today's call, please contact Fig Corporate Communications in New York at (917) 691-4047 or the company in Buenos Aires at +54-11-4309-7104. Grupo Clarín has also posted the webcast presentation that can be found at ir.grupoclarin.com under the Financial Information section. Comments made by management may contain forward-looking statements about Grupo Clarín's future performance, plans, strategies and targets. Such statements are subject to uncertainties that could cause Grupo Clarín's actual results and operations to differ materially. Such uncertainties include, but are not limited to, the effects of the impact and duration of Eastern Europe conflict, new or ongoing industry and economic regulations, possible changes in demand for Grupo Clarín's products and service and the effects of more general factors such as changes in general market, economic or regulatory conditions. Please refer to the disclaimer in the earnings report or presentation for additional information regarding forward-looking statements. It is now my pleasure to turn the call over to Ms. Samantha Olivieri. Please go ahead.

Thank you, Dave. Good morning, everyone. Let me quickly outline the agenda for today's call. We will start with a brief macro overview, followed by the discussion of the company results and financial position. Later, we will review the current ownership structure of the company. Let's move on to Slide 4. Argentina's economic performance during 2023 was conditioned in several aspects. The presidential election with its many stages and results, the economic measures taken by the administration in that electoral scenario, and the lingering negative effects of a severe drought. The imbalance of the public accounts and the monetary financing of the deficit marked the entire year. The acceleration of the inflation rate, which reached close to 211% year-over-year as of December, along with a loss of somewhat over USD 20 billion, turning the Central Bank's net precision negative and the spread between the alternative and official FX rates above 150% are the clearest symptoms of the state of the economy. The extension of the electoral process had negative macroeconomic impacts. The Ministry of Economy led a series of expensive politics, which resulted in a deterioration of the public accounts and exacerbated the peso surplus coupled with the scarcity of the Central Bank reserves. On the external front, the exports registered a 25% collapse equivalent to $21.6 billion, which led to a collapse of the offer of U.S. dollars in a natural year where private demand usually grows tied to the political uncertainty. Until the primary elections, the administration opted to face the FX pressure with severe restrictions on the demand of foreign currency. Later, the critical reserve position forced a correction of the exchange rate evaluating the peso. However, postponing an integral economic program resulted in the dilution of the devaluation by a jump in inflation. In its first few days in office, the new administration proposed an economical program of controlled shock. It's declared an objective to simultaneously attack several fronts. Amongst them, the fiscal deficit, the correction of relative prices, mainly official exchange rate and utility tariffs and the Central Bank's balance sheet by both recomposing the international reserves and diluting the remunerated liabilities of the monetary authority. The Central Bank has accumulated almost USD 8 billion in the market. We have above expectations for months when agricultural settlements are low, although net reserves are still in the negative terrain. The fiscal front also registers promising results reaching a surplus after interest expenses equivalent to 0.1% of TDP, explained by the strong adjustment of primary expenses in real terms, mainly in pensions and retirement expenses. The inherited monetary overhang is being corrected through a dilution process with a cumulative inflation of 51% as of February, the monetary base falls 30% in real terms -- excuse me, as of January. To conclude, in general terms, the economic performance of the new administration has exceeded expectations. The challenge of stabilizing the foreign exchange rate from the fractured reserves position and inherited is being met. So as the inflation pass-through of the FX correction, the inflation index is expected to continue its downward trend. However, this is not achieved without some negative side effects, such as the current recession and the generalized dilution of not only the Central Bank's debt, but also savings and income with its impact on employment. The degree of social tolerance to the unprecedented adjustments underway proposed by this administration still represents a question mark as does the governability going forward. Having gone through the macro overview, please turn to Slide 6 for a quick review of some highlights for 2023. As we said before, 2023 was marked by an extremely challenging macroeconomic environment which had a strong impact in advertising revenues, especially in the fourth quarter of the year. Still, we were able to maintain a strong financial position and low debt. We continue to consolidate our online content proposal. Thanks to corporate alliances, we have reached more than 710 thousand total subs and 605.4 thousand paying digital subs in Clarin.com by the end of December '23, 42% higher than December '22. In addition, our constant search for innovation in the digital world has led us to launch UalterAI, an AI reading assistant that accompanies every news piece at Clarin.com which allows our readers to select from 6 different ways of accessing information. Please turn to Slide 7 for a brief analysis of Grupo Clarín's financial performance for the full year of 2023. The company has reflected the effects of the inflation adjustment adopted by Resolution 777/18 of the Argentina Securities Commission, CNV, which establishes that the re-expression of figures must be applied to the annual financial statements for intermediate and special peers ended as of and including December 31, 2018. Accordingly, the reported figures corresponding to the full year and last quarter 2023 include the effects of the adoption of inflationary accounting in accordance with International Accounting Standards 29. For comparative purposes, the results were stated by inflation corresponding to December 2022, contain the effect of year-over-year inflation as of December 2023, which amounted to 211.4%. In this presentation, we included some figures and historical values for the sake of clarity. Revenues for the full year of 2023, increased by 120.6% to ARS 121 billion in nominal pesos. Considering IAS adjustment, revenues decreased slightly by 5.5% from ARS 229.2 billion to ARS 216.5 billion, mainly due to lower advertising and programming revenues in the Broadcasting and Programming segment partially offset by higher printing and circulation revenues in digital and printed circulation. Advertising revenues are the main source of revenue of the Broadcasting and Programming segment representing approximately 70%. EBITDA in nominal terms reached ARS 8.6 billion from ARS 7.3 billion and ARS 17.3 billion from ARS 30.6 billion in real terms. Revenues for Broadcasting and Programming and for digital and printed publications represented 45% and 48% of total revenues, respectively, while revenues for the other segment represented 7%. Net income for the period attributable to equity shareholders in real pesos amounted to a loss of ARS 10.5 billion from the 2022 figure of negative ARS 4.3 billion. The increase in negative net income was mainly the result of lower EBITDA in real terms, negative income from unconsolidated affiliates and higher negative inflation adjustment results partially offset by a positive charge in income tax given the negative results versus a negative charge in 2022 and some positive other income and expenses. Moving on to Slide 8. Revenues for the fourth quarter of 2023 increased by 143.1% to ARS 42.5 billion in nominal pesos and EBITDA decreased by 93% to ARS 128.6 million in nominal. If we consider inflation adjustment, revenues decreased by 15.2%, while EBITDA decreased by 117.7% mainly due to lower EBITDA and Broadcasting and Programming segment, partially offset by lower negative EBITDA in the Other segment. Net income for the period attributable to equity shareholders in real pesos was negative ARS 8.4 billion. The decrease in the net income was mainly attributable to lower EBITDA in real terms, negative income from unconsolidated affiliates versus 2022, which is largely explained by an impairment of property planned and goodwill registered in the fourth quarter in our subsidiary Papel Prensa and higher negative inflation adjustment results in unconsolidated affiliates and higher negative financial results, partially offset by a positive income tax charge in 2023 versus a negative charge the year before. The higher negative financial results are explained by higher negative net foreign exchange results given the jump in the FX rate in December and higher inflation adjustment results partially offset by results from operations and bond and notes that had been negative in 2022. Slide 9, please. As the graphs show, revenues decreased 15.2% in real terms, while costs decreased by 5.7%, resulting in a negative EBITDA margin in the fourth quarter of 2023. The decrease in EBITDA is mainly attributable to Broadcasting and Programming segment driven by lower advertising revenues in real terms and the restructuring costs in our subsidiary, Pol-Ka. Next slide, please. By the end of 2023, and given the current context of the fiction production industry for open television, which forces a reconversion of the business model of fiction production companies, Pol-Ka resumed its reorganization plan aimed at achieving a variability and optimization of [indiscernible] to fit the new market scenarios. The restructuring plan includes a celebration of around 110 termination agreements with staff for a total amount of approximately ARS 2.4 billion. This restructuring cost is included in the 2023 results. When we eliminate the effect of the onetime cost of Pol-Ka restructuring, total cost decreased by 10.3% mainly due to lower salaries in real terms, resulting in an EBITDA margin of 3.2%. On Slide 11, we review the revenue breakdown and performance. Our main sources of revenue are advertising, circulation and payable and programming. Advertising is typically tied to the performance of Argentina's economy. Advertisers ad spend budget is normally approved at the beginning of the year. During the first half of 2022, advertising sales and historical figures increased alongside inflation, which averaged approximately 60% year-over-year, but inflation accelerated from July '22, resulting in lower advertising revenues in real terms during the second half of the year, a trend that continued into 2023, although the gap was slightly smaller until the third quarter, in part explained by the official ad spend in a year of elections. Traditional advertising underperformed when compared to inflation. The challenging macro scenario during 2024 coupled with the prioritization of the economic activity during the fourth quarter, given the uncertainty generated by the presidential elections and a change of administration and the acceleration of inflation resulted in advertising revenues decreasing 36.8% in real terms in the fourth quarter, which explains the decrease in revenues in real terms. Circulation and payroll revenues include traditional newspaper and magazine sales, optional products and bulk sales and digital subscription table amongst others. The shift in readers behavior and corporate subs translated and paying digital subs increasing steadily during the past year. In addition, higher school book sales translated into higher revenues in real terms even with the increase in inflation rate. Programming sales include the sale of our TV signals to cable TV operators, OTT platforms and content production for third parties, which are seasonal. While the latter item returned during 2022, the revenues for TV signals are tied to the number of subscribers of pay TV operators and their ability to increase the price for their service and price increases as per local regulations must be communicated in advance. During 2022 and 2023, pay TV average prices increased slightly below inflation, negatively affecting year-over-year revenue in real terms. In contrast, international signals revenues are in U.S. dollars and with FX rate moving above inflation in the fourth quarter registered higher revenues when measured in constant pesos. We will now -- we will discuss the breakdown by segment shortly, but first, let's review the debt financial position as per Slide 12. The total debt as of December 2023 increased 25.1% to ARS 13.5 billion, mainly due to a higher foreign exchange rate which increased above year inflation and higher U.S. dollar-denominated debt, offset by lower local currency debt. Approximately 78.9% of our total debt or USD 13.2 million and 74% of the cash and cash equivalents or $28.9 million are in U.S. dollar accounts. Overall, we continue to show a manageable debt profile with low leverage. Moving on to the segment breakdown. We begin with Broadcasting and Programming division on Slide 14. Revenues decreased by 23.5% to ARS 23.9 billion in constant pesos in the fourth quarter compared to ARS 31.3 billion in fourth quarter '22. This was mainly due to the lower advertising revenues as explained when we discussed the revenue breakdown. Cost of sales decreased by 11% to ARS 16.6 billion. The decrease was mainly caused by lower salaries and severance payments in real terms. Selling and administrative expenses, excluding Pol-Ka restructuring costs, decreased 22.9% to ARS 5,351 million in constant pesos, mainly as a result of lower salaries and contingencies. As a result, during this period, adjusted EBITDA, excluding Pol-Ka reorganization cost, decreased 64.6% to ARS 2 billion and the margin reached 8.5% lower than the fourth quarter '22 figure of 18.3%. Prime time for Channel 13 audience share decreased 0.1% and total time audience share increased by 8.2% with a marked improvement from first quarter '23 after the reality aired by our main competitor, Telefe, Big Brother, ended while the performance of our shows improved. Our audience performance has allowed us to reach 32.4% of advertising market share. Now let's move on to the digital and printed publications on the next slide. Total revenues decreased by 7.2% in real terms to ARS 22.9 billion in fourth quarter '23, mainly as a result of lower advertising revenues and lower traditional circulation revenues partially offset by higher printing revenues related to electoral ballots and political brochures. This segment has been transformed radically as traditional paper gives way to new digital performance. Digital advertising has gained share as a percentage of total advertising revenues, and payroll revenues are gaining share as a percentage of newspaper circulation revenues. Traditional paper copy circulation showed a decrease from levels for the same period of 2022 to 50.8 thousand average daily copies with a decrease in share, while payroll subs reached 605.4 thousand as the fourth quarter '23, 41.6% higher than the fourth quarter '22, driven by corporate subs. Cost of sales decreased by 3.6% to ARS 13.2 billion in fourth quarter '23 compared to ARS 13.7 billion in fourth quarter '22, mainly due to lower salaries partially offset by higher costs related to the increase in printing revenues. Selling and administrative expenses decreased by 10.7% to ARS 9.5 billion in fourth quarter '23, mainly explained by lower salaries in real terms. Regarding the other segment, turn to Slide 16. During fourth quarter '23, net sales in real terms decreased by 17.2% to ARS 3,257.5 million. EBITDA resulted in negative ARS 675.2 million. Gestión Compartida is a shared services company and derives its revenues from administrative and corporate services rendered to Grupo Clarín and its subsidiaries which are eliminated in consolidation. During the last years, it has been increasing the participation of third-party revenues and its total revenues, generating new sources of income. This segment also includes corporate costs. Having gone through the segment breakdown, please refer to Slide 17 for a review of our ownership structure. As of today, 80% is owned by the controlling shareholders and total float is approximately 20%. Regarding the current composition of our float, as shown on the slide, approximately 31% is represented by GDSs and 69% is local float. That concludes our comments. We will now take your questions. Operator, we are ready for questions, please.

[Operator Instructions]

So we have a question from [ Santiago Garcia Segura ]. His question is, "I want to ask you about the Broadcasting and Programming segment. What percentage of segment costs are fixed and which one is variable. This year, a decline in consumption is expected. And since the advertising business is cyclical, how do you plan to address revenue declines during recessionary periods.

Yes. Thank you, Marcelo. Thank you for the question. In essence, the cost of broadcasting and programming segments are all fixed, but many are discretionary, which can be adjusted as we adjust the content that is there, you could air more expensive programs during good years when you can monetize advertising through those shows and you can adjust downwards when you have a recessionary year and you expect revenue to suffer. But in essence, you could qualify them all as fixed. And regarding the question as how we will address the revenue declines in a recessionary period, well, it's also answered by the previous answer. It's essentially adjusting discretionary costs and trying to manage cost to be below inflation and below the following revenues whenever possible.

I'll jump to the next question from [ Julian Eyzaguirre from Avaria ]. The question is, "the impairment in Pol-Ka was fully recorded on 4Q, which was the amount, it is nonrecurring, right."

Thank you for your question, Julian. Yes, it was all registered in the fourth quarter. It was registered as not as an impairment, but as restructuring costs, as severance payment, and it was all recorded in December and is nonrecurring.

Thank you, Sam. We don't have any more questions. So I would like to pass the call over to you, so you can make your final remarks, please.

Thank you. Thank you all for your attendance and questions. We appreciate your interest in our company. Please do not hesitate to contact us should you have any further questions and I look forward to speaking to you about the first quarter 2024 results. Have a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.